Towards the middle of last year, we wondered when the US recession would hit. Then at the beginning of this year, we were thinking about whether we were already in a “soft landing”. By April, the debate had become soft landing or “no landing,” that is, the economy kept surging ahead even with higher rates.
As we’ve noted, probably the greatest danger to a market-friendly soft landing was that inflation would stay high while the economy surged on. The data has been mixed, to say the least. Last month’s unemployment and inflation data made the case for a re-acceleration, driving a rise in bond yields and a decline in interest rate cut expectations. But then the unemployment data for April, released last Friday, suggested something healthier – a genuine and unambiguous slowing.
Payrolls rose by almost 200,000, which is far from a hard landing but also shows exactly the deceleration the US Federal Reserve (Fed) was hoping to engineer with higher rates. The growth in average hourly earnings dipped slightly below 4.0%, which is still too high for the Fed’s comfort but does suggest that the labour market is weakening, and taking inflationary pressures with it.
The labour data showed the second-lowest monthly number of new jobs since October, and the rise in hourly earnings was small.
Source: Wall Street Journal
Overall activity levels in the US remain healthy, and some cooling is welcome news to investors because it opens the door to possible rate cuts. Friday’s employment report showed the economy added 175,000 jobs in April, down significantly from 315,000 in March.
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